Ag fundamentals return

There are two continuing themes in the ag markets-slow planting, particularly in the Eastern Corn Belt, and strong demand for soybeans. Other hot topics, including ethanol, biodiesel, the stock market, and crude prices, have faded in importance. It's come down to basic ag fundamentals-acreage, yield, weather.

In terms of crop sizes, the corn and soybean crops have the potential to be at opposite ends of the spectrum. The corn crop, especially if yields are impacted by late planting, will be small enough compared to use that ending stocks will decline. Right now, carryout stocks are estimated at just over a billion bushels by the USDA.

On the other hand, the soybean crop will be "large" and carryout will increase. Demand for old crop beans has caused a sharp rally in bean prices, but a change by China in strategy could end that story. There certainly is a point where foreign buyers will consider waiting for a few months in order to pay substantially less for beans.

Shifts in acreage (less corn, more beans) will only make this crop size situation worse. A decent corn yield will do a lot to provide adequate supplies. The fact that corn yields were slightly above trend last year (when the Western Corn Belt dealt with late planting, flooding and replants) sits in the back of everyone's minds. Perhaps it can happen again this year--summer weather is so much more important!

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

There are two continuing themes in the ag markets-slow planting, particularly in the Eastern Corn Belt, and strong demand for soybeans. Other hot topics, including ethanol, biodiesel, the stock market, and crude prices, have faded in importance. It's come down to basic ag fundamentals-acreage, yield, weather.